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« July 2007 Table of Contents

Fast-casual frenzy

Seafood's healthy profile an ideal fit on fast-casual menus

The fast-casual evolution is taking the quick-service seafood scene 
by storm, igniting growth in an arena traditionally dominated by 
Long John Silver's and the mom-and-pop seafood shacks that pepper the nation's seashores.

Americans' burgeoning appetite for food that's healthful and more flavorful than conventional fast food but prepared and served faster than at casual, or family-style, establishments is prompting QSRs to refocus their concepts. Veteran seafood QSRs, such as Captain D's and Ivar's Seafood Bar, are enhancing their menus with more 
healthful products, and newcomers, including Fish Express, 
California Fish Grill and Nemos Seafood, are expanding their 
presence by opening restaurants.

Seafood is an ideal fit on fast-casual menus. It's lean, it's high in heart-protective omega-3 fatty acids, it cooks quickly and it encourages menu creativity. Plus, it's increasingly available at a consistent supply and price, thanks to the proliferation of farmed product worldwide.

These days, fast-casual menus rival casual menus. Zesty Shrimp Scampi, Grilled Chipotle Salmon Sandwich, Blackened Mahimahi Wrap, Charbroiled Halibut and Cajun Seared Ahi Tuna Salad are among the menu items at seafood QSRs. Just a few years ago, they were limited to fried fish sandwiches and fried shrimp.

Americans' dining-out habits have changed a lot in the past few years, say restaurant analysts and operators. Americans are more health conscious, more adventurous eaters and more impatient.

Additionally, rising gas prices are eating away at consumers' disposable income, forcing them to trade down from casual to fast casual, says Darren Tristano, executive VP of Technomic, a Chicago-based research and consulting firm. Consumers are watching their gas gauges, not necessarily their wallets. So instead of driving 10 miles to the nearest casual restaurant, they're grabbing a meal at the fast-casual joint that's only two or three miles from home, notes Tristano.

Essentially, the tab is what sets fast casual apart from conventional fast food. The per-person check averages $7 to $10 at fast casual and less than $7 at fast food, says Tristano.

However, there are numerous variances between fast casual and fast food. At some, but not all, fast-casual chains there's no drive-through, the décor is more modern and sophisticated, the staff delivers orders to patrons' tables and food is made to order and perceived as "healthier" and "fresher."

"We're seeing a shift not in the type of food [that QSRs menu] but in the type of cooking methods [they] use," says Tristano. "We're seeing a movement away from fried and toward grilled."

All of these factors are fueling the growth of fast-casual brands under the QSR umbrella. U.S. sales of the leading fast-casual chains doubled, to $11 billion, from 2001 to 2006, according to Mintel, a London-based research and consulting firm. They're projected to increase 62 percent from 2006 to 2011, accounting for inflation.

"There's still a lot more room for growth," says Billy Hulkower, senior editor and consumer market analyst for Mintel.

Time for change

Long John Silver's and Captain D's are the only seafood QSRs in Technomic's 2007 Top 500 Chain Restaurant Report, released in May. Long John Silver's ranked 51st, with 2006 sales of approximately $740 million, while Captain D's ranked 67th, with 2006 sales of $513.4 million.

Long John Silver's has struggled since Yum! Brands acquired the then 33-year-old chain, along with A&W All American Food, from Yorkshire Global Restaurants in 2002.

Since then, Long John Silver's has shrunk from 1,225 restaurants to 1,156. Bob Ruckriegel, the largest Long John Silver's franchisee, with 102 locations, told the Courier-Journal of Louisville, Ky., last month that his sales are stagnant and per-store profits are down over the past five years.

Captain D's, on the other hand, is expanding. The 600-unit chain, based in Nashville, Tenn., and concentrated in the Southeast, plans to open 20 to 25 restaurants this year. The first multi-brand unit combining Captain D's and Del Taco, the Mexican QSR that Sagittarius Brands owns along with Captain D's, is due to open in Mount Juliet, Tenn., this month.

Captain D's is trying to set itself apart from its competitors, including Long John Silver's, by reinventing itself as a fast-casual seafood chain instead of a seafood QSR that menus predominantly fried fish.

Last summer, Captain D's unveiled a new menu, logo and restaurant design at its Donelson, Tenn., location, where the first Captain D's opened in 1969.

"Captain D's is definitely pushing more toward fast casual," says Paula Vissing, senior VP of purchasing for the chain. "But the real objective is to find menu items people want."

The new menu includes several grilled-seafood items, including Alaska salmon, tilapia, catfish and shrimp; pasta dishes, such as Zesty Shrimp Scampi and Creamy Shrimp Alfredo; and sandwiches and salads, such as Ciabatta Salmon Sandwich and Grilled Salmon Salad. Previously, most menu items were fried.

Captain D's is also menuing flounder for the first time and will add mahimahi in the near future, says Vissing.

The chain also doubled the 
number of sides it offers to 14, adding Garlic Mashed Potatoes, Roasted Red Potatoes and Macaroni & Cheese, among others. More sides will be added to the menu in the near future, she notes.

"Our customers want healthier options, and Captain D's wants to move that way," says Vissing. "It really is amazing. People are really looking for these types of menu items in an affordable way."

To accommodate the host of new grilled-seafood items, Captain D's is gradually adding grills to its kitchens. The new restaurant design also includes a more contemporary exterior and a more relaxing ambiance inside, with new seating, a WiFi connection and power outlets for laptops.

"We're trying to create an experience," says Vissing. "It's a place our guests can hang out in for a little while."

All 32 Nashville-area units are scheduled for remodeling by this fall, and the remaining units will be gradually refurbished over the next three years.

"There are more consumers in quick service and fast casual now, and that speaks to the opportunity. It's enormous," says Vissing. "Sure, there's more competition now, but we're doing all the right things. We need to make sure we deliver the best experience possible. We need to stay focused on what we do best."

At the same time, Captain D's needs to continue offering its customers value, explains Vissing.

"To some, that's a $2.99 meal. To others, that's a $7.99 meal," she says. "That's why variety is important."

Ivar's Seafood Bar, with 24 restaurants in Washington and one in San Jose, Calif., is in the same boat as Captain D's. The Seattle-based concept, established in 1983 when 14 failing Arthur Treacher's Fish & Chips restaurants were converted into Ivar's Seafood Bar, is trying to broaden its appeal without forgetting its Pacific Northwest roots.

In the past year and a half, Ivar's has added grilled salmon, halibut and mahimahi to its menu and is looking at adding more entrée salads beyond salmon, shrimp and Dungeness Caesar salad, says Dave Fechter, director of operations for Ivar's. The goal is to attract more health-conscious consumers, he explains.

"If we're going to grow our business, we need to expand our menu," says Fechter. He hopes to see Ivar's grilled-seafood items increase from 8 percent of total sales to 15 to 20 percent in the near future.

In addition to growing its menu, Ivar's is looking at revamping its restaurant design to draw younger generations of seafood fans. The chain has hired BCRA, a Tacoma, Wash., 
design firm, to assess a new restaurant design and Buxton, a Fort Worth, Texas, marketing firm, to help with customer analytics and site development.

Still, Ivar's isn't abandoning its quality seafood roots. The chain still uses Pacific true cod in its fish and chips, its No. 1 selling menu item, even though prices of the fish are continually climbing.

Rising seafood prices "are a big challenge," says Fechter.

New kids on the block

Increasing seafood prices and the operational challenges associated with menuing the highly perishable protein have deterred fast-casual start-ups from launching seafood-based concepts.

But a few new fast-casual seafood concepts are starting to sprout up around the country, including Fish Express in the Dallas area, California Fish Grill in Southern California and Nemos Seafood in the Mid-Atlantic.

The idea for Fish Express, says Mike Hoque, the concept's founder and CEO of Hoque Enterprises in Dallas, originated from Go Fish, Hoque's upscale seafood restaurant in Addison, Texas.

"I asked myself, 'What can I do to bring the same group of people to a seafood restaurant two to three times a week?'" says Hoque.

So he opened a 2,500-square-foot, 80-seat Fish Express restaurant in North Dallas in January. Hoque plans to open five more units in the Dallas area in the next few months and is exploring opportunities in the Atlanta and Houston and Austin, Texas, markets. He hopes to open a total of 30 company-owned units in two years and is trolling for business partners to help him reach that goal.

"We're doing really well," says Hoque, adding that the North Dallas restaurant is projected to bring in $1.1 million in sales this year. "We're surpassing our expectations."

The Fish Express menu features several grilled-seafood items, such as Atlantic salmon, yellowfin tuna, mahimahi, catfish, tilapia and Gulf shrimp. It also includes sandwiches, po'boys, wraps, tacos, quesadillas, soups and salads.

"We're very focused on health," says Hoque. "My goal is to change the way people eat."

At Fish Express, the per-person check average is $10, orders are delivered to the tables and customer traffic is evenly split between lunch and dinner, a feat that many fast-casual concepts struggle to accomplish.

California Fish Grill has also boosted customer traffic at dinner. Victor Topete, the chain's owner in Fullerton, Calif., opened the first California Fish Grill restaurant in Gardena, Calif., in 1998 and has since added units in Cypress, Anaheim Hills and Irvine, Calif.

The largest unit is 3,330 square feet with 155 seats, while the smallest unit is 2,000 square feet with 65 seats.

At the Gardena location, orders are still picked up at the counter, and paper plates and plastic utensils are used. But Topete decided to class up the operation to attract a bigger evening crowd when the Cypress location opened in 2001, so orders are delivered to the tables and dishware and silverware are used there and at the Anaheim Hills and Irvine locations.

"It's working to our advantage," he says. "We try not to be too fast-foodish."

The California Fish Grill menu consists of several charbroiled-seafood items, a few fried-seafood items, tacos, burritos, chowders and salads. The fish, including basa, salmon, mahimahi, yellowfin tuna and swordfish, is delivered daily and cut in store. The per-person check average is $11 to $12.

"I think the price point is right," says Topete. "We're trying to appeal to frequent 
customers. We offer what you'd essentially get at a [casual] restaurant but for less money. It's not easy. But if we put out a good product people will keep coming through the door. We try not to dwell too much on menu prices.

"We're doing well," he adds. "We found our niche. There was definitely a void in [fast-casual] seafood. The options were limited. But there's still more opportunity out there."

Chris Spears, CEO of Nemos Seafood in Linden, N.J., couldn't agree more.

Since 2005, he and his business partner, CFO Gary Williams, have opened 11 Nemos restaurants, and several franchisees are under contract to open an additional 94 restaurants in New Jersey, New York, Pennsylvania and the Atlanta area in the next few years. "It's a wide-open market," he says.

Spears aims to expedite the chain's growth by selling franchises in blocks of 20 restaurants, whereby franchisees become partners in the company. Units are relatively inexpensive to open, only $187,000 with 20 percent down, which is attracting a lot of interest from franchisees, he explains.

Nemos is unique because take-out and delivery represent the majority of the chain's business; restaurants contain an average of only 20 seats.

Like other fast-casual seafood concepts, Nemos is adding grilled-seafood items to its menu - and grills to its kitchens - with health in mind. Its 
menu already features steamed, broiled and "lightly" fried seafood items, such as shrimp, spiny lobster tails, snow crab legs, Dungeness crab, crab cakes, mussels, catfish, tilapia and whiting.

Anchored by the belief that Americans are watching their waistlines now more than ever, fast-casual seafood newcomers like Nemos and veterans like Captain D's and Ivar's Seafood Bar are poised to fill the vacancy between conventional fast food and casual dining.

Associate Editor Steven Hedlund can be e-mailed at shedlund@divcom.com